Why Erie Overruled Swift

Why Erie Overruled Swift

Erie Railroad Co. v. Tompkins holds that a federal court hearing a state-law claim may not create federal general common law and must apply state substantive law and federal procedural law.¹ Justice Brandeis reached that holding by three routes, and each answers a different question. What did the First Congress mean when it told federal courts to treat “the laws of the several states” as rules of decision? What did Swift v. Tyson do to litigants in the courtrooms that lived under it? What lawmaking power may a federal court exercise over state-created rights? Keep the three apart, because later problems call on them one at a time.

The answers carry forward. The second supplies the twin aims that drive the rest of this chapter: discouraging forum shopping and avoiding inequitable administration of the laws. The third explains why a federal court may follow its own practice on procedure while it must follow state law on substance. The Court took the routes in the order listed, and so does this unit.

Misreading the Statute

Section 34 of the Judiciary Act of 1789, the ancestor of today’s Rules of Decision Act, provided: “The laws of the several States, except where the Constitution, treaties, or statutes of the United States otherwise require or provide, shall be regarded as rules of decision in trials at common law, in the courts of the United States, in cases where they apply.”² A rule of decision is the legal principle a judge applies to resolve the dispute, so the section tells a federal judge in a state-law case where to look for that principle. The dispute concerned two words, “the laws.” Swift read them narrowly. The section reached state statutes, the local courts’ construction of those statutes, and rights and titles to things with a permanent locality, such as real estate. It did not reach general questions such as the construction of ordinary contracts and commercial law, on which federal judges were to reason out the true rule for themselves.³

Justice Brandeis called that reading a historical error. He relied on the research of a scholar who had examined the original document, and he stated the section’s true purpose: to make certain that, in all matters except those in which some federal law is controlling, federal courts exercising diversity jurisdiction would apply as their rules of decision “the law of the State, unwritten as well as written.”⁴ The separate opinions name the scholar as Mr. Warren, and Justice Butler’s dissent supplies the title of his article, “New Light on the History of the Federal Judiciary Act of 1789.”⁵ The Act’s reference to the laws of the states therefore covers the rulings of state courts as well as legislative enactments, and a federal court in a diversity case applies the substantive law that a state court would apply to the same claim.⁶

The corrected reading fits the Act’s text. The Act yields only to the Constitution, treaties, and statutes of the United States, all of which are federal law, and it makes no exception for a federal judge’s own view of what the common law ought to be. A direction to follow state law would accomplish little if it excused federal judges from following state courts, since state courts are where much of a state’s law is declared.

Erie shows the corrected reading at work. The railroad argued that Pennsylvania’s highest court had declared people who use a longitudinal pathway along a right of way to be trespassers, and that a railroad owes an undiscovered trespasser nothing beyond avoiding wanton or willful injury. Tompkins denied that Pennsylvania’s courts had established any such rule and argued that, with no state statute on the subject, federal courts should decide the railroad’s duty as a matter of general law.⁷ The court of appeals accepted that framing. It found it unnecessary to ask what Pennsylvania law was, because a railroad’s responsibility for injuries caused by its servants was “one of general law.”⁸ After Erie that step is unavailable. The Pennsylvania decisions are among “the laws of the several States,” and the federal court must determine what they hold.

The Act’s opening exception marks the other limit. State law supplies the rule of decision only where no federal source of law controls, so Erie does not send every diversity question to state law whatever Congress has provided.

The Rules of Decision Act thus answers one question: whether judge-made state law counts as state law. When a Federal Rule of Civil Procedure collides with a state rule, the Act is no longer the relevant question. The question is whether the rule falls within the Rules Enabling Act, which bars the rulemaking power from abridging, enlarging, or modifying any substantive right, and the later sections take that question up.⁹

Justice Reed’s concurrence isolates the statutory ground. As the Court’s reference to Mr. Warren’s research and to Justice Holmes shows, he wrote, the Court now views “laws” as including “decisions,” so it is unnecessary to go further and declare the “course pursued” unconstitutional rather than merely erroneous.¹⁰ He also found the constitutional conclusion questionable. The line between procedural and substantive law is hazy, he noted, but no one doubts federal power over procedure, and the Judiciary Article and the Necessary and Proper Clause may fully authorize legislation such as section 34 itself.¹¹

The majority paired the statutory ground with a constitutional one. Justice Butler’s dissent quotes it as saying that “the unconstitutionality of the course pursued has now been made clear and compels us to do so,” and he reads that to mean that federal courts must follow state court decisions and that Congress is powerless to ordain otherwise.¹² He also objected that Mr. Warren’s article “does not purport to be authoritative” and that its weight “has never been discussed at this bar.”¹³ The grounds differ in consequence. A mistake about a statute can be corrected by another statute, while a constitutional limit binds Congress too. That is why the third reason, taken up below, carries the heavier consequences.

Unequal Administration

Erie’s second reason is that Swift failed in practice. Experience under the doctrine, Justice Brandeis wrote, “had revealed its defects, political and social; and the benefits expected to flow from the rule did not accrue.”¹⁵ The expected benefit was uniformity. Eminent federal judges would announce sound rules of general law, the reasoning ran, and state judges would fall into line.¹⁶ State judges did not fall into line, because the “[p]ersistence of state courts in their own opinions on questions of common law prevented uniformity.”¹⁷ The Court summarized the irony: “In attempting to promote the uniformity of law throughout the United States, the doctrine had prevented uniformity in the administration of the law of the State.”¹⁸

State courts could persist because nothing bound them. State judges believed themselves as well qualified as federal judges to perceive the true rule, and the law that developed under Swift was not federal law within the meaning of the Supremacy Clause, so the states were under no supremacy obligation to follow it.¹⁹ One state therefore lived under two bodies of law, one applied in federal court between litigants of diverse citizenship and another applied in state court between citizens of the same state.²⁰ Nor could the two be reliably separated. The effort to draw a line between general law and local law “developed a new well of uncertainties,” and the general-law category was broad.²¹ It covered contracts made and performed within the state, a carrier’s stipulations exempting itself from liability for negligence, torts committed in the state against residents, and punitive damages, and federal courts even disregarded state decisions construing local deeds, mineral conveyances, and devises of real estate.²² Across that range, the courthouse a party entered decided the rule that governed.

Who got to choose the courthouse? Diversity jurisdiction exists to prevent prejudice against out-of-staters and to assure a level playing field, yet Swift introduced discrimination in favor of the out-of-stater.²³ The Court said the doctrine “introduced grave discrimination by non-citizens against citizens,” because it made rights under the unwritten general law “vary according to whether enforcement was sought in the state or in the federal court,” and “the privilege of selecting the court in which the right should be determined was conferred upon the non-citizen.”²⁴ The mechanics show how the privilege fell. An out-of-state plaintiff could file in whichever court applied the better rule. An out-of-state defendant sued in state court could stay there or remove to federal court, depending on which rule favored it. An in-state defendant had neither choice: sued in federal court, it was stuck there, since no right exists to remove from federal court to state court, and sued in state court, it was stuck there too, since the removal statute bars removal by an in-state defendant.²⁵ The advantage followed citizenship, not the roles of plaintiff and defendant.

Black & White Taxicab shows the asymmetry at its sharpest. A local taxicab company had to sue in a Kentucky state court, which would refuse to enforce exclusive contracts, while a diverse plaintiff could go to federal court and obtain a more favorable outcome.²⁶ A corporate citizen of the state could reach the same federal rule without changing residence by reincorporating under another state’s laws, as happened in that case.²⁷ Brandeis drew the conclusion directly: the doctrine “rendered impossible equal protection of the law.”²⁸

Erie ends the payoff. The Indiana lender may still file in federal court, and reincorporation may still create diversity, but the federal judge must now apply Kentucky’s common law as a Kentucky court would. Diversity may still control the forum, but it no longer controls the outcome.²⁹

Hanna v. Plumer later named the two findings “the twin aims of the Erie rule: discouragement of forum-shopping and avoidance of inequitable administration of the laws.”³⁰ The link is direct. Forum shopping is choosing a courthouse because the law applied there favors you, as the reincorporating company did. Inequitable administration is what the Kentucky lender experienced: materially different treatment of litigants in the same state that arises only because one of them could reach the federal court. Brandeis’s two findings, the privilege of choosing the court and the resulting discrimination against citizens, are the two aims in their original form.

These aims are the policy engine of the cases that follow. Hanna held that the outcome-determination test “cannot be read without reference to the twin aims of the Erie rule,” and it noted that York framed the inquiry in terms of “substantial” variations because trivial differences between state and federal practice neither raise the equal protection problems that troubled the Court in Erie nor influence the choice of a forum.³¹ The tests in the later sections ask, in effect, whether a difference between state and federal practice would revive one of the two harms traced here. Both harms are findings about how Swift worked. The constitutional ground in the next section does not depend on them, although later decisions have leaned hard on the twin aims and some scholars argue that forum shopping should not be the doctrine’s center.³²

Constitutional Limits

The third reason is the Court’s most consequential, and the opinion states it as a limit on power. “Congress has no power to declare substantive rules of common law applicable in a state. . . . And no clause in the Constitution purports to confer such a power upon the federal courts.” Hence, the Court concluded, “[t]here is no federal general common law.”³⁴ Those sentences compress a chain of reasoning, and every later procedure case presumes it, so build it link by link.

The first link is the division of lawmaking power. The Constitution enumerates the national government’s powers, chiefly in Article I, section 8, and the Tenth Amendment preserves state power in areas not expressly delegated.³⁵ The second link is the gap that diversity jurisdiction leaves. A federal court has judicial power to hear a contract claim between citizens of different states, yet Congress has no delegated power to create a general law of contracts, so judicial power exists without federal legislative power to supply the governing law.³⁶ The third link reaches the judges themselves. If Congress cannot enact a general rule on the subject, no clause lets federal courts do it either.³⁷ For ninety-six years, under Swift, federal courts had declared rules of common law that Congress could not have legislated, and the Court called that improper; the law they made was not federal law within the meaning of the Supremacy Clause.³⁸ Where no grant of federal authority supports a federal rule, the Court later put it, “state law must govern because there can be no other law.”³⁹

The Court aimed its holding carefully. It did not hold section 34 unconstitutional. What it declared invalid was the Supreme Court’s own failure to treat state judicial decisions as “rules of decision” under the statute, because “in applying the Swift doctrine this Court and the lower courts have invaded rights which in our opinion are reserved by the Constitution to the several states.”⁴⁰ The statute survived, and it now directs federal courts to state law, whether a legislature or a state court made it.⁴¹ An answer that Erie struck down the Rules of Decision Act is therefore wrong.

Which clause supports the holding? The opinion does not say. Its remark that Swift “rendered impossible equal protection of the law” belongs to the practical reason and names no provision.⁴² The most obvious conclusion from the words “reserved by the Constitution to the several states” is that Swift violated the Tenth Amendment, but the opinion leaves that unstated.⁴³ Rival accounts exist. Justice Reed doubted that Congress lacks power to declare rules of substantive law for federal courts.⁴⁴ A separation-of-powers account holds that federal courts should not make law in advance of any action or invitation by Congress, even in fields where Article I would let Congress act.⁴⁵ And it misleads to picture the Constitution as fencing off subjects like torts and contracts for the states, since in many diversity cases the state rule applies because Congress, which could have supplied a federal rule, has simply chosen not to.⁴⁶ The source of the limit matters only when Erie meets a competing federal source. If Erie rests only on statute and the opposing federal source is constitutional, the federal source prevails, as it did in Byrd.⁴⁷

Even Justice Reed, who doubted the constitutional holding, accepted the point on which the rest of this chapter depends: the line between substance and procedure is hazy, but no one doubts federal power over procedure.⁴⁸ Why, then, may a federal court that cannot choose a railroad’s duty of care still apply its own rule on how a defendant is served? The two questions fall on opposite sides of the constitutional line. The duty owed to Tompkins was “substantive” in every traditional sense, and no federal power reached it.⁴⁹ In Hanna the plaintiff served the defendant’s wife in place of in-hand service on the defendant himself, as Federal Rule 4(d)(1) allowed, although the state rule called for in-hand service.⁵⁰ The Court upheld the federal method. The constitutional provision for a federal court system, augmented by the Necessary and Proper Clause, carries congressional power to make rules for practice and pleading in those courts, including rules on matters that fall in the uncertain area between substance and procedure but are rationally capable of classification as either.⁵¹ Congress cannot enact a general tort law for the states, but it can regulate how the courts it creates conduct their business, and the Rules Enabling Act is an exercise of that power.⁵²

The contrast explains why the constitutional command is strongest for substance and weaker for procedure. When a federal court sitting in diversity follows a state procedural rule, the reason is often policy rather than constitutional compulsion. Guaranty Trust stated the policy: when a federal court exercises jurisdiction solely because of diversity, the outcome should be substantially the same, so far as legal rules determine it, as it would be in a state court.⁵³ In many such cases state law applies because Congress has chosen not to provide a federal rule.⁵⁴ Erie’s constitutional holding reaches only substantive rules in fields beyond federal power, and the tests in the following sections govern the rest.

Labels will not do that work for you. “Substantive” appears only once in Erie and “procedural” never, and the labels are shorthand for a choice-of-law decision reached after analysis; they do not reveal the analysis. Whether something counts as substantive can also vary with the purpose of the question.⁵⁵ Burden of proof shows how. When first-hand witnesses are dead and access to proof is impeded for both sides, the party with the burden usually loses, so the burden of proof goes to state law, while the mere burden of pleading, which requires only a verbalization on paper, does not necessarily.⁵⁶ The next section takes up that analysis.